As Inflation Intensifies, ‘I Remain Bullish On Gold & Silver’

Today the man who called the start of the commodity bull market said he remains bullish on gold and silver as inflation intensifies.

Here is what Peter Boockvar wrote today in a note to clients: Ahead of the US manufacturing index from Markit at 9:45am, we saw some other figures from overseas economies. Japan’s PMI for January rose to 52.8 from 52.4 which puts it at the best level since 2014. Markit said it was “helped by solid expansions in both output and new orders” which was “driven in part by a sharp increase in international demand, as new export orders rose at the quickest rate in over a year.” Not something you are used to hearing in Japan came next, “Meanwhile, inflationary pressures picked up to the greatest since March 2015.” This is becoming a common global theme. As the yen has been the main (maybe sole) driver of the Nikkei, it fell .6% overnight to close at a 7 week low. After the close though, the yen has been weaker. If there is a country to watch this year to see how companies respond to the carrot and stick of Trump trade policy (whether implemented verbally or literally) it will be Japan and its big multinationals…

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The January European manufacturing and services composite index from Markit was a touch below expectations. It fell .1 pts to 54.3 instead of rising to 54.5 and compares with 54.4 in December. Manufacturing was up slightly while services was down a hair. The German composite index fell m/o/m solely due to a drop in services but manufacturing was up. On the flip side, the French index was up led by services as manufacturing was down a touch. We don’t see other country internals until the revision is done in a few weeks. As seen in Japan, exports for the region also improved. It does seem like global trade (with further evidence from the recent export data from Taiwan, Singapore and South Korea) has bottomed out. Employment rose at the quickest pace since February ’08. One year business expectations rose to the best since July ’12 when this question first was asked. Markit sees this pace of overall growth leading to a .4% q/o/q rise in GDP in Q1. Markit calls this ‘strong’ but with Europe it’s all relative of course as its still slow.

Also, as seen in Japan and what I said with them, “Inflationary pressures meanwhile intensified further in January. Firms’ average input costs rose at the fastest rate since May 2011…Price hikes often reflected higher global commodity prices as well as increased import costs resulting from the euro’s depreciation, notably against the US dollar.”

Bottom line, do not ignore the rising inflationary pressures that are becoming more apparent in many different places. Not only because of its impact on profit margins but what it means for global bond markets that even with the recent rise in rates, is wholly unprepared for any further acceleration if it were to happen. I remain bullish on commodities and still believe ag is going to play catch up to the upside. I remain bearish on global sovereign bonds. Much is being made of the record high short position in the US 10 yr Treasury future as seen in the recent CFTC data and while I certainly don’t ignore it, it’s at best a short term indicator to note. If the US stock market is anywhere close to being right on the benefits of Trumponomics, I don’t see how the US 10 yr is not much higher this year.

I Remain Bullish On Gold & Silver
The dollar index is bouncing after trading below 100 last night after Steve Mnuchin said “from time to time, an excessively strong dollar may have negative short term implications on the economy.” I for once want to hear a Treasury Secretary say we support a STABLE dollar. Either way, hearing Mnuchin’s comments on the heels of Trump’s a few weeks ago makes it completely up in the air as to what the Administration wants from the US dollar in terms of how trade and taxes will influence it and vice versa. I remain bullish on gold and silver.

The British pound is weaker on the Supreme Court ruling that Theresa May will need approval from Parliament in order to proceed with its leave from the EU but I don’t think that’s a surprise to anyone. Also, this doesn’t change the inevitability of the Brits leaving as the Parliament will go along with it but any delays now will be aggravating as let’s get this over with.

Repeating the pushback against the Germans who are beside themselves over ECB monetary policy just as its inflation stats are jumping higher, ECB Governing Council member Jozef Makuch told them “It doesn’t matter how important a country is, there can only be one monetary policy.” This battle will be one of the main stories of 2017.